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SCHW

"While markets felt fairly volatile, investors remained engaged, and we saw record trading for the first half of 2018, up 29% from last year"

SAN FRANCISCO--(BUSINESS WIRE)--The Charles Schwab Corporation announced today that its net income for
the second quarter of 2018 was a record $866 million, up 11% from $783
million for the prior quarter, and up 51% from $575 million for the
second quarter of 2017. Net income for the six months ended June 30,
2018 was $1.6 billion, up 45% from the year-earlier period.

Three Months Ended

Six Months Ended

June 30,

%

June 30,

%

Financial Highlights

2018

2017

Change

2018

2017

Change

Net revenues (in millions)

$

2,486

$

2,130

17%

$

4,884

$

4,211

16%

Net income (in millions)

$

866

$

575

51%

$

1,649

$

1,139

45%

Diluted earnings per common share

$

.60

$

.39

54%

$

1.14

$

.78

46%

Pre-tax profit margin

45.5

%

42.7

%

43.7

%

41.6

%

Return on average common stockholders’ equity (annualized)

19

%

15

%

19

%

15

%

Note: All per-share results are rounded to the nearest cent, based
on weighted-average diluted common shares outstanding.

CEO Walt Bettinger said, “Schwab’s second quarter results illustrate our
‘Virtuous Cycle’ at work – when we do right by our clients, they entrust
us with more business. During the period, investors rewarded us with
core net new assets of $53.4 billion, a second quarter record. Our first
half core net new assets of $119.0 billion were also a record and
represented a 7% annualized organic growth rate. Both of our primary
businesses contributed to this strength in asset gathering, with Retail
and Advisor Services setting new records for the first half of the year
– their net new assets were up 46% and 24%, respectively. At the same
time, we drove ongoing market share gains, attracting over two dollars
in inflows for every dollar in outflows to competitors for the fifth
consecutive quarter. Investors opened 384,000 new accounts in the
period, bringing the first half total to 827,000, the highest level in
18 years. The 7,500+ independent advisors who custody with us continued
to build their practices with our help – accounts at Schwab under their
guidance rose 10% to 3.3 million at month-end June, versus total company
brokerage account growth of 7%.”

“While markets felt fairly volatile, investors remained engaged, and we
saw record trading for the first half of 2018, up 29% from last year,”
Mr. Bettinger continued. “Clients also sought our help and guidance;
digital advisory solutions sustained an asset gathering pace of around
$1 billion a month, reaching $33.3 billion at quarter-end. Total assets
receiving ongoing advisory services at Schwab equaled a record $1.77
trillion at month-end June, a 15% year-over-year increase, compared with
overall client asset growth of 12%. We ended the quarter serving $3.40
trillion in total client assets across 11.2 million active brokerage
accounts, 1.3 million banking accounts, and 1.6 million retirement plan
participants.”

Mr. Bettinger concluded, “We believe both retail investors and
registered investment advisors are attracted by our willingness to
challenge the status quo through our ‘no trade-offs’ combination of
value, service, transparency, and trust. Through consistent strategic
focus and disciplined execution, we have doubled the size of our client
asset base in under seven years. Yet, we still serve less than 10% of
U.S. investable wealth, leaving us an enormous opportunity to continue
driving growth into the future.”

CFO Peter Crawford commented, “Our record second quarter results
demonstrate ongoing success in growing and serving our client base, with
some help from the economic environment. Total revenues reached $2.5
billion, up 17% from last year, and our twelfth consecutive record
quarter. Net interest revenue rose to a record $1.4 billion, a 34%
increase, driven by higher interest rates and larger client cash sweep
balances. Our net interest margin expanded 18 basis points from the
first quarter to 2.30%, a level not seen since 2009. Asset management
and administration fees decreased 4% from last year to $814 million, due
to lower money market fund revenue as a result of transfers to bank
sweep, client asset allocation choices, and our 2017 fee reductions. On
the trading front, higher client activity lifted Trading revenue 15% to
$180 million. Turning to expenses, our 11% increase reflected hiring to
support our expanding client base and ongoing investments for fueling
growth. Altogether, we produced a 570 basis point gap between revenue
and expense growth, which resulted in a record 45.5% pre-tax profit
margin; combined with a lower tax rate of 23.4%, we delivered record Net
income of $866 million, up 51% from a year ago.”

Mr. Crawford added, “Effective balance sheet management remains an
essential element of our financial discipline. In the second quarter, we
issued $1.95 billion of senior notes, which we used to redeem $275
million of maturing debt and maintain appropriate liquidity given the
growth we’re achieving. In addition, we utilized Federal Home Loan Bank
advances during the quarter to provide temporary funding for additional
investments ahead of deposit growth. Transfers from sweep money market
fund balances to bank sweep totaled $20 billion, and the outstanding
FHLB advances ranged as high as $5 billion in the quarter. These
advances were paid off by the end of June, so the $14 billion quarterly
increase in our consolidated balance sheet was largely due to the bank
sweep transfers and client activity. As anticipated, we crossed the $250
billion asset threshold for heightened regulatory requirements during
the second quarter, ending the period at $262 billion in total
consolidated assets. The company’s year-to-date balance sheet growth of
nearly 8% is tracking with the expectation we laid out in February of at
least 15% growth for 2018. For the second quarter, our preliminary Tier
1 Leverage Ratio increased slightly to 7.6%, and we delivered the
highest return on equity in over nine years, at 19%. These are tangible
signs of our robust financial health propelled by strong earnings
generation.”

This press release contains forward-looking statements relating to
growth in the company’s client base, accounts, and assets; balance sheet
growth; and earnings generation. Achievement of these expectations and
objectives is subject to risks and uncertainties that could cause actual
results to differ materially from the expressed expectations.

Important factors that may cause such differences include, but are not
limited to, the company’s ability to attract and retain clients and
registered investment advisors and grow those relationships and client
assets; general market conditions, including the level of interest
rates, equity valuations, and trading activity; competitive pressures on
pricing, including deposit rates; the company’s ability to develop and
launch new products, services, and capabilities in a timely and
successful manner; client use of the company’s investment advisory
services and other products and services; level of client assets,
including cash balances; the timing and amount of transfers to bank
sweep; client sensitivity to interest rates; regulatory guidance;
capital and liquidity needs and management; the company’s ability to
manage expenses; and other factors set forth in the company’s most
recent report on Form 10-K.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of
financial services, with more than 345 offices and 11.2 million active
brokerage accounts, 1.6 million corporate retirement plan participants,
1.3 million banking accounts, and $3.40 trillion in client assets as of
June 30, 2018. Through its operating subsidiaries, the company provides
a full range of wealth management, securities brokerage, banking, money
management, custody, and financial advisory services to individual
investors and independent investment advisors. Its broker-dealer
subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org),
and affiliates offer a complete range of investment services and
products including an extensive selection of mutual funds; financial
planning and investment advice; retirement plan and equity compensation
plan services; referrals to independent fee-based investment advisors;
and custodial, operational and trading support for independent,
fee-based investment advisors through Schwab Advisor Services. Its
banking subsidiary, Charles Schwab Bank (member FDIC and an Equal
Housing Lender), provides banking and lending services and products.
More information is available at www.schwab.com
and www.aboutschwab.com.

Includes proprietary equity and bond funds and ETFs held on and off
the Schwab platform. As of June 30, 2018, off-platform equity and
bond funds and ETFs were $11.2 billion and $28.3 billion,
respectively.

(3)

Excludes all proprietary mutual funds and ETFs.

(4)

Second quarter of 2018 includes outflows of $9.5 billion from
certain mutual fund clearing services clients. First quarter of
2018 includes outflows of $84.4 billion from certain mutual fund
clearing services clients. Fourth quarter of 2017 includes an
inflow of $16.2 billion from a mutual fund clearing services
client. Second quarter of 2017 includes inflows of $18.3 billion
from a mutual fund clearing services client.

Net new assets before significant one-time inflows or outflows, such
as acquisitions/divestitures or extraordinary flows (generally
greater than $10 billion) relating to a specific client. These flows
may span multiple reporting periods.

(3)

Excludes Retirement Business Services.

(4)

Periodically, the Company reviews its active account base. In July
2017, active brokerage accounts were reduced by approximately 48,000
as a result of low-balance closures.